The Blog

April 24, 2016

Zuora moves to the center

Zuora, the company that made its bones in subscription billing and payments held its annual user meeting in San Francisco last week and staked out some new turf. It had always been back office focused but its latest messaging includes elements of the front office. Perhaps it’s no surprise given co-founder and CEO Tien Tzuo’s history of having been an early luminary at Salesforce rising to the CMO position before he left.

The new turf straddles the two worlds we’re most accustomed to dealing with, the front and back offices. This area, let’s call it the middle office, takes data from either side, changes it, and passes it onto processes that go in both directions. Among the applications that act this way are compensation management, subscription billing, customer success management, and possibly HR. But each application area does different things for different reasons.

Compensation management

Xactly may be the best example of a pure play comp system though certainly Callidus Cloud should be included. Sales incentive compensation used to be a pure back office thing because it tallied up sales and applied some algorithms then cut checks. But today, comp management is also about motivating people within an active quarter by identifying best opportunities and ensuring appropriate resources are applied. For this, the marketing and sales automation data is useful and derived information is fed back into SFA. That’s a long way from pure compensation.

Subscriptions

Of course you need to make the subscription bills accurate and get them out efficiently, but these systems throw off huge amounts of customer data concerning uptake and use which are valuable in helping to sniff out early warning signs of disaffection, churn, and attrition—all things to avoid if you are a subscription company. It is in this area that Zuora is making a bigger footprint thanks to its acquisition of analytics company FrontLeaf last year. The subscription data run through analytics can easily kick off processes that use billing, sales, and service, another front to back situation.

Customer success

Full blown customer success takes a page from subscriptions by capturing subscriber data and marrying it to other client data to produce compound metrics that can give managers a better understanding of how well a business is doing with the customer base. This area might see renewed competition with subscription billing vendors in the months ahead.

HR

Long associated with payroll and mainframe back office systems, the HR or HCM systems today are lending their data and insights to front office processes like field service and professional services automation influencing deal structure, reporting, and more.

We could also easily add CPQ to the list too because back office catalogs, price lists, and pricing algorithms come to the service of SFA via CPQ to close better deals.

So all of these application areas are staking out positions that are neither fully back office and certainly not fully front office either. They are opening up new territory and that is potentially very exciting because the other territories are rather full of settlers and we need somewhere else to occupy.

I don’t know what to call it but that will come and I hope we avoid something as cliché as the middle office. This new area strikes me as another dimension. We’ve talked about systems of record for a long time and those systems belong to old school front and back office systems. But the new territory embodies more of what you’d expect from a system of engagement, a system that leverages all of the data businesses collect and actually turns it into unique and valuable IP.

That’s what struck me about Subscribed last week. In so many words Zuora said we’ve done a pretty good job since 2007 of building a solution to the subscription billing problem. But now there are other challenges.

Sales compensation added several important business processes once businesses were able to take their eyes off of the quarterly challenge of writing commission checks quickly and accurately. Incentive comp became all about doing the right business and boosting profits through being more intelligent actors in the market.

I think something similar will happen with subscriptions. Now that the billing and payments issues are resolving Zuora is training its guns on pricing and packaging. Think about it, when your products are more or less electrons, innovation can easily happen around how you package and price and it can happen at much faster rates than we see in traditional product development—if you have agile systems.

This is why the emerging middle ground is so important and why it’s one more thing to keep an eye on even if you’re not an analyst.